Guarded optimism indicated for bioengineered wheat outlook

by Josh Sosland
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WASHINGTON — The future of agricultural biotechnology is bright and, more than ever before, could involve wheat, according to participants in a panel discussing bioengineered wheat.

The discussion was a highlight of the annual meeting of the Independent Bakers Association June 17-19 at the Washington Court hotel in Washington. Panelists were Molly Cline, executive director for industry affairs, Monsanto Co., St. Louis; and Daren Coppock, chief executive officer of the National Association of Wheat Growers.

While Monsanto shelved its work on bioengineered wheat in 2004, the company has remained in close contact with the wheat industry, Ms. Cline said.

She said the work toward introducing bioengineered wheat stopped because "we decided Roundup Ready spring wheat was not of interest to growers."

Ms. Cline devoted much of her presentation to a look back demonstrating the rapid adoption of bioengineered grain and countering criticisms of agricultural biotechnology.

Dramatic expansion since ‘96

She reminded the group that bioengineered corn has not been on the market very long, first introduced in 1996. From the 4 million acres planted that year, area devoted to bioengineered crops grew to 308 million acres in 2008.

"Critics say this technology has been forced on growers," she said. "It isn’t true. Farmers ask for this technology. Today, 25 countries have commercialized a biotech product."

The most recent crop move to adopt bioengineered varieties is sugar beets, which enjoyed a 50% market penetration in the first year and could grow to 90% in 2009, the second year, Ms. Cline said.

While at least 10 years will elapse before bioengineered wheat will be introduced, Ms. Cline expressed cause for optimism. She noted that China has moved forward to position itself for the introduction of bioengineered rice. Such an adoption "could help pave the way for other food crops," including wheat, she said.

Offering aggregate global statistics, Ms. Cline said 13 million growers worldwide plant bioengineered crops, 90% of whom are in developing countries. She said the technology is useful for growers "whether it is a Chinese farmer with a single mule or a U.S. cotton farmer with 13,000 acres."

Monsanto estimates that agricultural biotechnology adds tens of millions of dollars to grower income and additional crop production while cutting 630 million lbs of pesticide applications.

Looking at consumer attitudes, Ms. Cline said varied studies have yielded a range of results, depending on what is asked, but generally are positive.

When asked an unaided question about their greatest concerns about food, safety, contamination, handling, preparation and sources rank far higher for consumers than agricultural biotechnology.

"The one result that is consistent about consumer attitudes is that the more they know the more comfortable they become," she said.

Moving toward issues of biotechnology and wheat, Ms. Cline noted the decline in U.S. wheat plantings to 51 million acres from 78 million acres during the 25 years ended in 2007. The decline was not entirely due to the emergence of biotechnology in other crops. Concomitant with the emergence of agricultural biotechnology, scientists have improved base genetics of corn and soybeans.

"This has been a real surprise of biotechnology," she said.

Ms. Cline said Monsanto has not been conducting research on wheat since 2004, but scientists believe drought tolerance or improved nitrogen utilization are possible for wheat.

"The key to success with new products is dialogue," she said.

Pressure to raise wheat production

Taking a forward look at issues confronting wheat cultivation, Mr. Coppock identified a number of challenges to be addressed, including the need to double world food production by 2050, yield growth in corn that currently is quadruple the growth rate in wheat and the need to increase food production sustainably.

The challenges facing the wheat industry are daunting, Mr. Coppock said. He cited analysis by Bill Wilson, a professor at North Dakota State University, who said any reasonable scenario over the next five years should result in wheat planted area falling below 49 million acres in 2016.

He said that drought resistance technology will add 60c a bu in opportunity cost for growers thinking about planting wheat instead.

In a strategic planning session, NAWG established a goal of increasing wheat yields 20% by 2018.

"We began with a goal of 50% but decided that is not achievable," Mr. Coppock said.

In addition to biotechnology, UG-99, wheat rust that is wreaking havoc with yields in many areas of the world, has emerged as a major concern, Mr. Coppock said. He noted that 70% to 75% of wheat varieties currently planted in the United States are vulnerable to the rust.

Research into alternatives is continuing apace, and biotechnology may help provide an answer, Mr. Coppock said. He noted that rice is not susceptible to rust, and that the possibility of incorporating resistant traits from rice into wheat is being explored.

Mr. Coppock reviewed what he described as good progress at the Wheat Summit with a number of key activities that may help move toward the introduction of bioengineered wheat. In addition to efforts by U.S. Wheat working with customers around the globe, a broader effort toward tolerances, a commitment to offering customers choice (conventional or bioengineered wheat) and multilateral coordination between countries all are important steps, he said.

"We view the object as aligning the value chain by thoughtfully discussing key concerns of each sector to find win-win solutions, resulting in the successful commercialization of biotech wheat," he said.

Challenges index fund impact

While commodity index fund position changes have been positively correlated with price changes, the evidence suggests the position changes were not what precipitated the price movements, said Jim Moser, deputy chief economist at the Commodity Futures Trading Commission. Mr. Moser discussed "Economics and Commodities" in a June 18 presentation before the I.B.A.

"The relationship is not causal," he said. "Position changes in commodity index funds follow rather than lead price changes."

Mr. Moser’s presentation preceded the release of a Senate subcommittee report calling for tighter regulation of wheat markets (see Milling & Baking News of June 20, Page 1). In his talk, Mr. Moser cited what he described as "two major studies" as supporting the lack of causality, including an interagency task force on crude oil.

Additionally, Mr. Moser said that studies of recent volatility have found increases when measured week over week and month over month versus 2003-04, but not day over day.

Commodity index funds have high levels of open interest, rising to 45% plus for Chicago Board of Trade Wheat for the September 2008 contract, the highest of the agricultural commodities. For Kansas City wheat, the open interest level was 24% and for corn, 22%. Mr. Moser said studies have not demonstrated a relationship between commodity index fund market share and either volatility or price changes. There has been evidence that during the roll period (between contracts), the index fund activity has pressured nearby prices while lifting deferred prices. The roll takes place seven to nine business days into the month prior to expiration.

Turning to issues of convergence, Mr. Moser said failures may be indicative of problems with the delivery mechanism.

"The industry is feeling around, trying to fix the problem," he said.

He noted that corn convergence has been fine, soybeans have been worrisome and wheat has been "a real problem."

"The C.F.T.C. doesn’t have a ready answer," he said.

Soybean tightness nearby concern

While supplies should become more plentiful in the fall, extraordinary tightness in old crop soybeans is a matter of concern to bakers, said Jim Hess, senior sales account manager, Horizon Milling, Wayzata, Minn.

Mr. Hess, a regular speaker on grain markets at I.B.A. meetings, said that according to U.S. Department of Agriculture data, the stocks-to-use ratio projected for year end is a razor thin 3.6%. For 2010, the ratio is expected to widen to 6.8%, still a modest level, he said.

When describing the wheat supply and demand picture, the facts and figures don’t necessarily add up to the challenging markets and historically high prices that have been prevailing, Mr. Hess said.

"Wheat doesn’t really have a ‘story,’" he said.

After record production in 2008-09 a smaller crop is anticipated in 2009-10. But because of a reduction in exports expected for 2009-10, wheat stocks should be flat from this June until next, he said. The stock-to-use ratio in 2010 should be the largest in several years, he added.

The June stocks-to-use forecast from the U.S. Department of Agriculture for 2010 was 30%, up slightly from 2009 and would be up dramatically from 13% in 2008.

Returning to the theme of "no story" in wheat, Mr. Hess said the wheat market strength "is a story about everything else." He noted that there is no shortage of wheat in the world, and that the rice stocks-to-use ratio has improved, diminishing an important source of upward pressure on wheat markets.

Reviewing sources of strength in wheat prices, which have remained stubbornly above historical averages, Mr. Hess said the market has been pulled upward by strength in the CRB commodity index. This index, in turn, has been lifted by weakness in the U.S. dollar.

"The dollar is down 11% since March, and as of early June oil prices were at a new recent high," he said.

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